Silly comparison

May 22nd, 2013 at 6:49 am by David Farrar

Danyl at looks at the share price of Fletchers over the last month after 10 days ago announced an inquiry into the cost of building materials. As the price has dropped Danyl says:

According to the Steven Joyce/Fran O’Sullivan theory of political sharemarket vandalism, Nick Smith has ‘destroyed’ about $260 million dollars worth of wealth in the last ten days. I look forward to their columns/press releases warning of capital flight, skies raining blood etc.

This is one of Danyl’s more silly comparisons. In his world I guess there are no shades of grey. An inquiry into high prices is the same as a unilateral announcement with no consultation that the Government is going to dismantle the competitive market and set prices.

Let’s look at what Nick Smith actually said:

Housing Minister, Nick Smith, speaking on “The Nation” said there was significant concern that items “the likes Batts, likes of Gib and concrete” were more expensive than what they were in Australia.

Batts and Gib are Fletcher’s brands and the company is a major concrete supplier.

But Mr Smith denied the Government was singling Fletcher’s out.

“We need in a very thorough way not on the basis of rumour or speculation, on the basis of really good analysis and information, to have a hard look at how the building materials’ market is working and to ensure that there are the competitive pressures that are there,” 

“In terms of tariffs and those things, you know New Zealand has a pretty liberal regime for bringing products in, but are there other barriers? 

For instance, we have a Body Standards New Zealand that sets the standard, and sometimes I’m concerned that the industry groups have too much influence over those standards, that are then effectively adopted by councils and do not allow product from overseas to be able to give Kiwis real choice about those products.”

Mr Smith said his inquiry was going to look what regulatory tools that the government had at its fingertips, that could try and get building materials costs more reasonable for the industry. 

So no mention or even hint of price controls. In fact the announcement seems focused on increasing competition in the market, and reducing regulatory costs. And also note that these products are just a few of many produced by Fletchers.

This is hardly in the same universe as what Greens and Labour did with Contact Energy and the 13 other generators. They have been attacking Contact for a couple of years, claiming (falsely) their prices are higher than the SOEs. Contact has only one product – electricity, and their announcement was that if elected they will unilaterallly determine the price Contact can sell electricity at in the future. This is the Government deciding the price for the sole product Contact produces. It is not about increasing competition, but removing it all together. It is in fact a de facto as if the Government gets to set the price you charge for your sole product, they effectively own your company.

So as I say, the comparison is beyond silly.

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44 Responses to “Silly comparison”

  1. expat (4,048 comments) says:

    @DPF you shouldn’t expect any rational commentary at the increasingly shrill mouthpiece for the Labour Green coalition. It is attracting fanatical activists who sound familiar in tone to regulars on The Standard. And the satire has gone.

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  2. MrTips (149 comments) says:

    Considering that FBU is up 40% since August last year, Smith must have done that too? No?
    As to the levelling recently, it is currently waiting season and FBU have also had a share allotment https://nzx.com/companies/FBU/announcements/235287

    Danyl has no idea what he’s talking about.

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  3. ross69 (3,652 comments) says:

    You have a poor memory. The Commerce Commission held an inquiry into the energy sector and found that wholesale prices were 18% higher than they would be if there was greater competition. Billions of dollars were being made in super normal profits.

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  4. Scott Chris (5,947 comments) says:

    Odd. You’d think that the market would determine a fair price for high volume items such as batts and gib.

    But yeah, it is a spurious comparison.

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  5. ross69 (3,652 comments) says:

    It is attracting fanatical activists who sound familiar in tone to regulars on The Standard.

    Like Geoff Bertram, Rod Oram and Bernard Hickey? Hmmm I suggest you have a lie down and a cup of tea.

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  6. ross69 (3,652 comments) says:

    Wingnuts on the Right complain about Labour and the Greens “destroying” wealth. But they make no mention of Rod Oram who surely did more than most to put a spanner in the works of Mighty River Power.

    http://www.stuff.co.nz/the-press/opinion/columnists/8577703/Tight-lips-over-Mighty-River-Power-analysis

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  7. johnbc (15 comments) says:

    Danyl’s a silly twerp who inhabits a tiny Wgtn bubble that orbits around the narrow confines of a Vic Uni science dept and the echo chamber of Green politics. His main failing is that he thinks he is much more intelligent and worldly wise than he actually is. It’s an unfortunate flaw. I wouldn’t waste too much effort on trying to whittle down his hubris DF

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  8. berend (1,671 comments) says:

    Scott: Odd. You’d think that the market would determine a fair price for high volume items such as batts and gib.

    Did you see the word “regulatory regime”? It’s not a free market. Big companies love regulation, they use it to make sure competitors cannot enter their turf. This is probably what’s happening here: Nick Smith suggested these companies have written the rules such that it’s hard to bring in competing materials. I.e. it’s not up to “NZ standards”, “cannot without our climate”, “it’s made by Chinese”, you know the drill.

    Markets are free when governments do not regulate it. If a government regulates a market, you have other effects, and they may have an important effect on the price. I’m not saying that sometimes regulation might be good (an apprentice really doesn’t have a good way of assessing work safety rules, even though such rules may push up the price of building), but it would be so nice if we actually knew per regulation what the price impact was.

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  9. Harriet (4,614 comments) says:

    “……The Commerce Commission held an inquiry into the energy sector and found that wholesale prices were 18% higher than they would be if there was greater competition. Billions of dollars were being made in super normal profits…..”

    Now we know why Labour & the Greens REALLY want to keep the SOE’s!

    As you just said “…the SOE’s were partaking in ‘billions of dollars of super normal profits’ “!

    Labour will just maintain the wholesale price of electricity and ‘redistribute’ the super profits in the form of ‘more welfare’ to the poor as a pay-off. They’ll get votes for that too.

    Fuck that! :cool:

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  10. Than (439 comments) says:

    @ross 69 – How is the NZ Power policy supposed to increase competition? I’d be all for measures to increase competition in the electricity sector, but creating a single buyer does exactly the opposite.

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  11. scrubone (3,074 comments) says:

    Wingnuts on the Right complain about Labour and the Greens “destroying” wealth. But they make no mention of Rod Oram who surely did more than most to put a spanner in the works of Mighty River Power.

    *facepalm*

    So, everyone’s talking about Labour’s policy.

    But it’s the guy no one has mentioned that, perversely, everyone is listening to.

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  12. scrubone (3,074 comments) says:

    You have a poor memory. The Commerce Commission held an inquiry into the energy sector and found that wholesale prices were 18% higher than they would be if there was greater competition. Billions of dollars were being made in super normal profits.

    You are correct.

    By comparing the actual wholesale prices with hypothetical competitive benchmark prices, Professor Wolak estimated that the wholesale prices charged over the period 2001 to mid-2007 resulted in an extra $4.3 billion in earnings to all generators over those that they would have earned under competitive conditions.

    http://www.comcom.govt.nz/media-releases/detail/2009/commercecommissionfindsthatelectri

    It does seem that Labour has a poor track record regulating electricity markets.

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  13. La Grand Fromage (145 comments) says:

    Danyl knows what he is talking about as he is incredibly intelligent. You can tell he is smart just by the titles of his blog posts at the Dim Post where he shows off his vast knowledge of science fiction and cultural memes.

    What also makes him better than most is that he has recently become a father, which as far as I am aware, is really quite rare. This gives him an insight into emotional and whimsical experiences that others don’t have.

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  14. Albert_Ross (266 comments) says:

    “An inquiry into high prices is the same as a unilateral announcement with no consultation that the Government is going to dismantle the competitive market and set prices.”

    Are you perhaps missing a “not”?

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  15. Ed Snack (1,773 comments) says:

    That’s a pretty impressive “own goal” Ross69, the inquiry found that the last labour government screwed the consumer over for billions; and you want MORE government intervention ?!? WTF. You do know, do you not, who actually owned the generators in that period, and who was responsible for ratcheting up the prices ? Free market it was not !

    But onto Fletcher Building, the Gib Board market is indeed controlled exactly as intimated above. Gib is a heavy, relatively simple product, that isn’t hard to manufacture but is not inexpensive to ship. We could purchase from Australia and make significant savings, but NZ and Australian standards are sufficiently different to make it necessary for an Australian manufacturer to have a separate NZ compatible line. Gib Board was (not sure if still true but it probably is) Fletcher Building’s most profitable business because of this de-facto protection.

    Removing this mechanism would definitely lower the profitability of that business unit and of Fletchers overall, but I’m not sure how big an impact, possibly $30-50M; which is material but not overwhelmingly so. The key difference between this and the electricity proposals made by the Greens and others is that the reduced prices would come about from increased competition, not from fiat decisions by “wise” bureaucrats. Thus any gains will be persistent and long term and won’t be subject to political interference for short term gain.

    That is, IMHO, the appropriate way to organize markets if you must, regulate lightly and always with an eye to increasing competition. Competition does the work for you making products better, cheaper, and sometimes both at once. In contrast, heavily regulated markets stifle competition and lock in profits and power to incumbents and their government cronies.

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  16. 3-coil (1,203 comments) says:

    Danyl is merely revealing (again) his hubris and stupidity – always has been, always will be. The only surprise is the fact that you expect better from the silly little twit, and that you have any time at all for his waffling dribble.

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  17. Viking2 (11,228 comments) says:

    For instance, we have a Body Standards New Zealand that sets the standard, and sometimes I’m concerned that the industry groups have too much influence over those standards, that are then effectively adopted by councils and do not allow product from overseas to be able to give Kiwis real choice about those products.”
    =================

    The last time Smith interfered with a body standard he assisted the Greens et al to remove treated timber from building specs and thus we have buildings falling down because they leak. Treated timber prevented this.

    Had that timber been required to be of the original standard the sure leaks would have occurred but we would just re-clad rather than reconstructed.

    will Smith require guarantees of durability that our regulations require?

    Past time Smith was sent where he can no longer do harm to others.

    There has been Chinese Gib available in Aussie and its failed even their low standards.
    There are competitors to batts.

    Do we want houses that want last the 50 years that the law requires?
    Or do we want Smiths standards everywhere?

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  18. dave_c_ (217 comments) says:

    A grassroots experience – I considered replacing our entire ceilings worth of old Batts, with new ones – I was flabbergasted at the price to do this – even a do it yourself job – For what appears (from a laymans perspective) to be a simple/basic product, the price being asked does seem exhorbitant.
    Perhaps commentators asssertion that competition exists is a myth – the very fact that they are not nearly as expensive as in Aus tells us something
    In my view NZ seems to be a soft touch in terms of rorting the consumer – across a multitude of fronts

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  19. RRM (9,606 comments) says:

    DPF:
    So no mention or even hint of price controls.

    Funny, when I read “…regulatory tools that the government had at its fingertips, that could try and get building materials costs more reasonable for the industry…” I must admit it sounded to me like a euphemism for price control.

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  20. dave_c_ (217 comments) says:

    Irrespective of price control threats or not – there’s a perception out there that to make a resaonable profit is fine, but to be shafted by excessive profit making is totally unacceptable
    In my view it is good, to from time to time put the focus, scrutiny or spotlight onto such matters maybe, just maybe it may make a difference. !

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  21. ross69 (3,652 comments) says:

    heavily regulated markets stifle competition and lock in profits and power to incumbents and their government cronies.

    The price of power has risen more than 5 times the rate of inflation in the past year. You seem to be suggesting that this government’s cronies are doing very nicely, thank you. I think you might be right.

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  22. ross69 (3,652 comments) says:

    I’d be all for measures to increase competition in the electricity sector, but creating a single buyer does exactly the opposite.

    You must think the Pharmac model is seriously flawed, right? Have you written to your local MP, or even the PM, expressing your concern with Pharmac and how it operates?

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  23. Kimble (4,397 comments) says:

    The price of power has risen more than 5 times the rate of inflation in the past year. You seem to be suggesting that this government’s cronies are doing very nicely, thank you. I think you might be right.

    I would be interested in seeing your analysis that shows that the previous price was the right one.

    You must think the Pharmac model is seriously flawed, right?

    Check the margins.

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  24. queenstfarmer (751 comments) says:

    @ross69, Pharmac is not a single buyer. Wise up.

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  25. Than (439 comments) says:

    Pharmac does not create a monopsony. Drug companies sell their products worldwide. If Pharmac tries to demand a price that’s too low, they simply sell their products in another country. It does reduce competition slightly, but not enough to matter on a worldwide scale.

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  26. Ed Snack (1,773 comments) says:

    Ross69, so who pushed prices up in 2002-2007, answer please. Was it the owners, or the management did so and the owners negligently let them do so ? Either way you look at it the finger of “blame” points directly at Helen Clark and the labour government.

    They screwed over the consumer big time, so I can see why you support more of the same.

    And Pharmac, otehrs said it first, but your ignorance is showing. Pharmac negotiates with pharmaceutical companies worldwide, as one of many buyers; it’s not the single buyer. Your argument might work if power was able to be exported and sold off-shore, but except for the sale of Aluminium which is too constrained to have any significant impact, it cannot. Therefore the structure proposed by the Greens et al is a single purchaser in a market, which is a recipe for inefficiency and cronyism, which is no doubt why it is so popular with those sorts of people; cronyism is their natural state.

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  27. simonway (373 comments) says:

    But Danyl wasn’t saying the policies were similar. He was saying the share prices of these companies reacted in similar ways to announcements of possible policies that might affect their profits, so the culpability (of Nick Smith and Shearer+Russell) in each case is similar.

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  28. Jinky (180 comments) says:

    Of course it’s (not) different. One statement was by the opposition who stated what they would do if they ever got into power. The other statement was by a Govt minister about what he WILL do. The fact both statements had an effect on share prices was coincidence surely?

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  29. ross69 (3,652 comments) says:

    Pharmac does not create a monopsony. Drug companies sell their products worldwide.

    We are not talking about what drug companies do worldwide, just as we’re not talking about what power companies do worldwide. Try sticking to the topic. Out of interest, how much money do you think Pharmac has saved taxpayers?

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  30. ross69 (3,652 comments) says:

    “The research shows that PHARMAC’s general allocative policies have been highly successful in procuring an adequate range of quality medicines at internationally low prices, saving the New Zealand health system approximately $1.17 billion in 14 years. This has been achieved by methods of utilitarian efficiency analysis (cost-utility analysis and Quality Adjusted Life Years) and careful purchasing decisions based on evidence of clinical effectiveness. PHARMAC has also taken advantage of its exemption from Part II of the New Zealand Commerce Act (1986) using market dominance to exercise monopsonistic procurement practices.”

    http://aut.researchgateway.ac.nz/bitstream/handle/10292/4563/CoyleG.pdf?sequence=22

    Sounds like Pharmac has done a great job.

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  31. queenstfarmer (751 comments) says:

    Try sticking to the topic says Ross69, who introduced Pharmac into this post, based on his obvious misunderstanding of how Pharmac works.

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  32. scrubone (3,074 comments) says:

    He was saying the share prices of these companies reacted in similar ways to announcements of possible policies that might affect their profits, so the culpability (of Nick Smith and Shearer+Russell) in each case is similar.

    Inquiring into potential market regulation vs. announcing you’re going to destroy the market.

    Yea, totally the same thing.

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  33. scrubone (3,074 comments) says:

    Ross69, the day the only medicine I can purchase is NZ made medicine that’s purchased through pharmac is the day you can make that comparison.

    Until then, the two models have differences that are vast enough to render any comparison irrelevant.

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  34. queenstfarmer (751 comments) says:

    @scrubone, correct, and I’m sure Ross69 now knows this, but having already made a false analogy he doesn’t want to lose (even more) credibility by acknowledging his error. Which, sadly, is just how ideologues operate.

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  35. Than (439 comments) says:

    @ross69 – We are talking about what drug companies do worldwide. We have to if you want to have a meaningful discussion about Pharmac and it’s effects.

    A drug company can sell to Pharmac, or it can sell to anybody else in the rest of the world. If Pharmac tries to dictate too low a price for drugs, the drug company tells them where to go and sells to the rest of the world. Until the day we build a trans-Tasman transmission line, NZ power companies can only sell power in NZ. If the government dictates a low price for power, companies have no choice but to accept it. And they’ll try and retain their profit margin by cutting investment in maintenance and new generation, resulting in blackouts for consumers.

    This BTW is why comparing NZ Power to the situation in California is flawed. Electricity providers in the US usually have networks crossing state lines (Pacificorp for example has a network spread across California, Oregon, and Washington), so they are like the Pharmac model above. If California tries to dictate a price, Pacificorp just sells their power in Oregon and Washington.

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  36. itstricky (1,684 comments) says:

    Regardless of price scemantucs Danyl is right. Try this on for size:
    1 Labour announces possible MRP buy-back if elected
    2 KB community outraged -party should make proposed policy obvious so voters and share buyers know what the future holds
    3 Labour announces policy regarding power nationalisation before sales commences (as requested by outraged KB community)
    4 KB community now outraged that Labour would ‘intervene’ in the market and wipe value out, despite also being outraged at (2).
    5 It is pointed out that Government announcements always cause market shifts. What’s the problem?
    6 An example is given of a recent announcement by Nick Smith that caused a market shift
    7 KB community outraged (again). That is a different thing they cry, despite also being outraged by (2) and (4)

    Sound familiar?

    That DPF even attacks this shows how evangalistic he is for the blue & white.

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  37. hannity (152 comments) says:

    “Inquiring into potential market regulation vs. announcing you’re going to destroy the market.”

    I missed Nick Smith announcing he was going to destroy the market.

    when was that?

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  38. expat (4,048 comments) says:

    @Ross69, you are a facsimile of a standard poster (or perhaps one in drag).

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  39. ross69 (3,652 comments) says:

    Try sticking to the topic says Ross69, who introduced Pharmac into this post, based on his obvious misunderstanding of how Pharmac works

    Actually, you’re the one who doesn’t seem to understand how Pharmac works. As the research shows, Pharmac has saved taxpayers hundreds of millions of dollars by using its “market dominance to exercise monopsonistic procurement practices.” This is similar to the energy model proposed by Labour-Greens.

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  40. ross69 (3,652 comments) says:

    We are talking about what drug companies do worldwide.

    You’re a slow learner. We’re talking about Pharmac and its monopsonistic procurement practices…which have saved taxpayers over $1 billion in 14 years. If you had your way, taxpayers would have forked out this money.

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  41. Than (439 comments) says:

    @ross69 – look up the definition of monopsony please. Then answer this simple question; “Do international drug companies sell to (A) only Pharmac, or (B) both Pharmac and anybody else in the world outside New Zealand? ”

    If you answered (B) you are correct, and you have also confirmed that Pharmac is not an example of a monopsony. That is an objective fact which you do not seem willing to accept.

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  42. ross69 (3,652 comments) says:

    Than

    You surely aren’t that thick.

    Who supplies Herceptin in New Zealand? There is only one buyer (and supplier) of Herceptin and that’s Pharmac. There is only one buyer of various drugs and pharmaceuticals and that’s Pharmac. You have no idea what a monopsony is.

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  43. ross69 (3,652 comments) says:

    “The new John Key led National Govt elected in November 2008 honoured an election pledge to make Herceptin a PHARMAC listed drug. Previously women were required to pay (up to) $120,000 for this life saving drug treatment. ”

    http://www.jackieblue.co.nz/index.php?/pages/herceptin.html

    But according to Than, women could have gotten Herceptin for nothing from any number of suppliers. So, why were women paying up to $120k for treatment?

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  44. Than (439 comments) says:

    ross69 – Surely you aren’t that thick, you realise the world isn’t just New Zealand.

    Drug companies can sell to many agencies in many different countries. Pharmac is only one of them. It is not a monopsony.

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